UPDATE 1-U.S. court reverses fee award to ex-Goldman programmer

Wed Sep 3, 2014 11:48am EDT

(Adds details from decision, byline)

By Jonathan Stempel

Sept 3 (Reuters) - Goldman Sachs Group Inc should not have been ordered to pay former programmer Sergey Aleynikov's legal fees to defend against criminal charges that he stole secret code from the bank's computers, a divided federal appeals court ruled on Wednesday.

All three judges on a panel of the 3rd U.S. Circuit Court of Appeals agreed that Goldman's bylaws were "ambiguous" as to whether Aleynikov's title as a vice president made him an "officer" eligible to recoup fees, which now exceed $3 million.

Writing for a 2-1 majority, however, Circuit Judge D. Michael Fisher said more evidence was needed to determine Aleynikov's eligibility for the fees.

The dissenting judge, Julio Fuentes, would have construed the ambiguity against Goldman, and ordered the Wall Street bank to advance the fees.

All three judges rejected Goldman's request to dismiss Aleynikov's fee request altogether. The case was returned to U.S. District Judge Kevin McNulty in Newark, New Jersey.

Kevin Marino, a lawyer for Aleynikov, said he will ask the panel or the entire 3rd Circuit to review the decision, saying the bylaw ambiguity "compels judgment in Mr. Aleynikov's favor."

Goldman spokesman Michael DuVally declined to comment.

The decision is the latest twist in a more than five-year case in which Aleynikov was convicted, went to prison and was later acquitted, only to be prosecuted a second time.

Aleynikov was arrested in July 2009 for having allegedly stolen code from Goldman as he prepared to join a Chicago high frequency trading startup.

Convicted in December 2010, Aleynikov had spent 11 months in prison when a New York federal appeals court in February 2012 voided his conviction, saying prosecutors improperly applied federal laws on corporate espionage.

But in a surprise move six months later, the office of Manhattan District Attorney Cyrus Vance Jr charged Aleynikov with state crimes based on the same alleged misconduct.

Last October, McNulty ordered Goldman to cover Aleynikov's legal fees, then exceeding $700,000, in the New York state case, which is still pending.

He also refused to let Aleynikov recoup more than $2.3 million of fees in the federal case, pending more evidence.

In Wednesday's decision, Fisher said it was improper to construe Goldman's bylaws against the bank to help determine whether Aleynikov deserved to benefit from them.

He also said Goldman had considerable discretion in paying legal fees, having over a six-year period covered 51 people, including 15 vice presidents, out of 53 considered for fee advancement or reimbursement at its Goldman Sachs & Co unit.

In his dissent, Fuentes said a ruling for Aleynikov would serve the public policy of encouraging companies to draft "clear corporate instruments" that can be applied predictably.

Aleynikov's current prosecution took an unexpected turn in June when Justice Ronald Zweibel of the State Supreme Court in Manhattan threw out much of the evidence, saying it was gathered in violation of the Fourth Amendment.

The case is Goldman Sachs Group Inc v. Aleynikov, 3rd U.S. Circuit Court of Appeals, No. 13-4237. (Reporting by Jonathan Stempel in New York; Editing by Dan Grebler)